Should you elect full survivor benefits when retiring as a federal employee? In this episode, John, Tommy, and Mike discuss one of the most critical decisions for federal retirees. They explore the costs, benefits, and long-term financial implications of survivor benefits, urging retirees to carefully consider their options. They also emphasize the importance of full survivor benefits for ensuring continued income for spouses after retirement, providing real-life examples to show how these benefits can impact financial security, tax advantages, and peace of mind.

Listen in to learn why survivor benefits are often the right choice, as well as how they protect retirees’ families from financial instability. You’ll hear the truth behind common misconceptions—like the belief that life insurance can replace these benefits—and why private survivor benefits don’t offer the same protections as federal ones. Plus, you’ll hear essential insights into navigating survivor benefits in unique scenarios, including for new spouses, and the real-world impact of declining survivor benefits.

Listen to the full episode here:

What you will learn:

• Why survivor benefits are such a controversial issue. (3:00)
• Why we typically don’t work with clients who opt out of survivor benefits. (4:40)
• The true cost of survivor benefits. (5:50)
• How having a different pension might impact your decision. (12:00)
• How to ensure you’re maximizing everything you’ve earned as a federal employee. (15:00)
• The importance of recognizing that we’re not invincible—life can be unpredictable. (18:45)
• Common misconceptions about survivor benefits that you need to be aware of. (23:15)
• Why Mason & Associates is so dedicated to advocating for survivor benefits. (32:00)
• Why you shouldn’t let fear dictate your financial decisions. (39:00)
• Our perspective on life insurance and why it’s not always the answer. (50:00)

Ideas worth sharing:

• “If you can’t afford to retire with full survivor benefits, then you can’t afford to retire.” – Mason & Associates
• “Life insurance is a necessary evil. If you can afford to retire, you can afford to die, as long as you take survivor benefits.” – Mason & Associates
• “Out of the 400 or so families we work with—many of them who have elected full survivor benefits at retirement—I don’t think we’re aware of any one of those who regret their decision.” – Mason & Associates

Resources from this episode:

• Mason & Associates: LinkedIn
• Tommy Blackburn: LinkedIn
• Federal Employee Health Benefits (FEHB)
• Stay Wealthy Retirement Show
• Federal Employees – DO NOT Decline Survivor Benefits!
• Mason & Associates Interview with Wavy 10- Military Survivor Benefits

Did you enjoy the Federal Employee Financial Planning Podcast? Never miss an episode by subscribing on Apple Podcasts, Amazon, Spotify, and YouTube Music.

Read the Transcript Below:

Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.

John Mason: Welcome to the Federal Employee Financial Planning Podcast. Today we’re discussing one of the most debated topics. Should you take survivor benefits at retirement? Don’t skip this episode if you’re single, divorced, or widowed. You can be someone’s hero by listening and then sharing this episode with friends, family, and coworkers.

Your federal pension is one of your largest financial assets. Don’t leave it uninsured at retirement. Today, Tommy, Mike and I are going to discuss all things survivor benefits, including the real cost, the options you have at retirement. What if you’re a dual federal employee? We’re going to address comments that we’ve seen on our previous YouTube videos, as well as comments we’ve seen on Reddit.

And for those of you who are watching on YouTube, we’re gonna provide a visual to help illustrate why we’re fans of survivor benefits and why we help encourage our clients to elect full survivor benefits at retirement. Finally, we’ll share real life experiences from decades of helping federal employees retire and we will discuss how having survivor benefits impacts your mindset in retirement, specifically, how one reacts to stock market volatility and how it changes your spending decisions in retirement.

Survivor benefits, we built a firm helping folks elect full survivor benefits at retirement, and we wanna bring to you today decades of experience and why we’re so passionate about helping you, the federal employee, elect full survivor benefits at retirement.

Tommy, Mike, how we doing?

Mike Mason: It’s one of my favorite subjects and like we discussed before filming this, the first probably five years of radio, every segment of our radio program would be survivor benefits. We were the only ones and still are the only ones talking about how important just saying yes to survivor benefits. So I’m excited to be part of the show.

Tommy Blackburn: It’s always a favorite topic for us, as Mike said as a foundation kind of pillar of the firm. And surprisingly as we’ve done some research, it’s apparently still a controversial topic, even though we think we’ve been spreading the message since the founding of the firm. Personally, doing great.

A little I guess a little sad that we have to be inside working right now because it’s been cold and snowy and we’re getting a reprieve of some nice weather and it’d be nice to get out there and enjoy it, but there will be plenty of those days and excited to record this episode with you fine gentlemen.

John Mason: It’s amazing how survivor benefits has been a continued conversation.

After decades of producing radio shows around survivor benefits, a couple years now producing podcasts and YouTube content around survivor benefits, it’s fascinating how big of a decision it is for our federal employee clients and those listening to this podcast who…

We have made that decision so many times. Like we don’t re-litigate it, right? Like we just know full survivor benefits is the answer. And I think sometimes we can take for granted that although we’ve helped hundreds of people elect full SBP, when Joe retires at the end of this year, it’s his one and only time to get that decision correct or incorrect.

And it just feels, I think it’s important, I guess what I’m saying, that we continue to resurface this. So audience, if you’ve heard a previous episode on SBP and you’re thinking why, again, it’s because there are new people retiring every single year that make this decision one time. So we’re gonna constantly bring SBP back to the forefront guys.

We just have to and I think we have to remember that it’s, these folks one time opportunity.

Mike Mason: Yeah. And it’s important I think for people to know that if we’re working or beginning a relationship with somebody that just says “no” to this piece of advice. Take survivor benefits.

We typically, I don’t know that we’ve ever onboarded, a prospective new client that says no to the advice to take survivor benefits. That’s how important it is to us. And one of the reasons, one of the biggest reasons that we’ve said is you don’t get to turn down survivor benefits die.

And then your wife, at a dinner party say, “I’m not getting any income. And my financial planners were Mason & Associates.” You don’t get to spoil our relationship by a bad decision.

John Mason: That’s a great point, Mike. So Tommy, why don’t you kick us off a little bit on some of the topics that we want to cover today.

We highlighted quite a bit in the intro, the various places. So where would you like to start today?

Tommy Blackburn: I think maybe one of the simplest places to start that I can think of is what does it cost and what does it get us? So maybe we’ll just quickly hit on exactly what is SBP and that’ll clear up some myths.

And I just wanted to dovetail with you guys on the importance of this. And we do it all the time. So sometimes we take it as second knowledge. As our clients and new clients are retiring, every single day almost, or throughout the year. This is front and center on that retirement application.

So this is something that we’re always checking for. And so it has to be that topic of discussion as you were saying, John. So first and foremost, what does it cost? The answer there is gonna be 10% for I think I can safely say for 99% of cases, right when we are ensuring our spouse for that survivor benefit.

Now, if we’re doing another interested party then that can change, but 10%. And what’s important about that? A few things that are important: that’s a pre-tax cost, meaning the income that you’re calculated on and taxed on is after you pay that 10%. So that makes it effectively pre-tax, which we would argue.

We know it’s gonna be less than 10%. Probably means you’re effectively actually paying 6% to 7% after you tax adjust that 10% from there. So we have the cost. Another interesting thing about it, and then John, it always sticks out to me when I first started working with you on federal employees is I said 99% of the time is true and you guys can illustrate it for me.

So what if we have a spouse that’s 20 years younger?

John Mason: Oh, the 20 years younger is amazing, right? So when somebody retires from Huntington Ingalls Shipbuilding or another, non-federal, non-military career, one of the questions that’s asked is how old’s your spouse that you’re protecting? And the cost is based on how old you are, right?

So if there’s a big difference in person retiring from spouse they’re protecting, the premium instead of being 10% for survivor benefits could be as high as 50% or 60%. I’ve seen huge numbers when you start factor factoring in the actuarial cost of protecting that younger spouse. But as a federal employee, guess what?

There is no actuarial cost. Conversely, that is different if you have an insurable interest, survivor benefit that you’re protecting, that would have an actuarial cost to it, but not on a spouse. That’s a great point, Tommy.

Mike Mason: Yeah, and I think that… my mind was going a different direction, on the age of the spouse, so let’s tell a real-life story where we’ve got a client who was 20 years older, CSRS than his first spouse.

He took survivor benefits. That’s almost a no-brainer, right? He’s 20 years older and he’s a male. But we ensured that the female spouse took survivor benefits as well, and they couldn’t quite understand that, with a 20-year age difference. Unfortunately, the female spouse did pass away.

And if nothing else, everything she paid into that system in a lifetime of work didn’t go back to Uncle Sam. It’s going to her surviving husband. Oh, and one other thing there, John. A good point. You mentioned Huntington Ingalls and private sector. And, be careful where you get your information from on survivor benefits.

We’re not as big a fans as survivor benefits in private sector. Many times it’s not cost of living adjusted. So don’t get private sector survivor benefit information. You wanna make sure you get federal government, military, or even a state survivor benefit specific information. Not, using general private sector.

John Mason: Well, you just opened up a can of worms. So thank you for doing that.

Tommy Blackburn: My big takeaway there, Mike, is it should be individualized advice, right? So if you’re federal, it should be about the federal system and we should know those benefits. And if you are private, it should be specific to whatever that plan is and make a decision based on your individual financial plan.

And maybe that is where some of the misconception where we have folks who don’t specialize in federal and will not take the time to learn about the benefit programs probably shouldn’t be giving advice on it. So if you have a financial advisor who is used to working in private sector and they figured out those plans that they frequently work with, they can’t just apply that knowledge to now your federal benefits because they are very unique and different.

In fact, one of ’em probably was gonna save this till later, but something, the few things are already very unique here that we’ve hit on, one, the 10%, not that actuarial. That’s extremely unique just to the federal and military. It’s 6%, but again, it’s not actuarily adjusted. The other is this popup feature.

I don’t believe I’ve ever seen that in the private sector. So if one of you guys want to run with that, I think that’d be a good time to sprinkle it in.

Mike Mason: Yeah, I wanna make sure that because you said it extremely well. First 10% is the cost, right? And of course 50% of the unreduced benefit is the benefit.

But you also mentioned it’s pre-tax, so it feels more let’s say 7% as the cost. So that’s important to know. And then where were we going with the popup feature? I’ve had people with terminal illnesses or spouse with a terminal illness say why should the retiring spouse take survivor benefits?

Again, we’re not guaranteed of anything terminal illness. We’re hoping that we’re gonna battle back from that. But the last thing in the world the person would want is while he or she’s battling terminal illness. The retiring spouse dies and there’s no survivor annuity, right? If it goes the way they’re planning, maybe you pay survivor benefits for six months to a year, and that spouse passes away and then it pops back up to the full amount.

So the pop-up is if the spouse should protection, protecting passes away, you go back to full amount. Definitely doesn’t happen in private sector.

John Mason: The various pensions guys are so different, whether it’s federal or military or CSRS or state or private. And I really want to drive home the things that y’all have said, which I think are so valuable, is when I think about our client base, the recommendation for Huntington Ingalls Shipbuilding is often take the pension and elect probably 50% or even 100% survivor benefits.

For federal it’s, take it. Take the pension, obviously, and take full survivor benefits. But then we’ve got this great hospital network here locally, Sentara and. For those folks, we oftentimes don’t encourage people to even take the pension and they take a lump sum, and now they have a big chunk of investment dollars rather than a pension.

So I just wanted to highlight how just having a different pension could have you in a completely different realm of decision-making. So for federal, it’s 50%. For Huntington Ingalls, maybe we’re doing a hundred percent protection. And then for Sentara, maybe we’re not even taking a pension at all, we’re foregoing the entire pension in lieu of a lump sum cash.

And caveat, that can change based on interest rates too. So it is not a one size fits all approach. So the real cost we’ve talked about, I think we’ve covered the three options, which is decline it in 0%. The 5% cost for 25%, or the 10% cost for the full 50%. And Tommy, I know you and I have talked about this for a long time is for most of our federal employees retiring, they’re not dual federal.

It’s one federal employee and one non-federal. And in that instance, it’s often overlooked that in order for the surviving spouse to continue federal employee health benefits, FEHB, they must be receiving a survivor pension. So if we said nine outta 10 or eight outta 10, whatever the number is of retirees today with a non-federal spouse, 0% survivor benefits is really not an option. It’s really not.

Your options are really 25% or 50%, because we want our spouse to have one of the greatest benefits that we have, which is federal employee health benefits and retirement. So now you’re down to two options. And if you’re already at option one, the cost for full is not that significant, Mike.

It’s an additional 5% less taxes. So your cost is really 3% because you didn’t have a, you didn’t have a choice on the first five.

Mike Mason: That’s a great point. Yeah. I would use three and a half. Three and a half percent’s baked in, right? Maybe Uncle Sam actually was trying to tell you something.

You don’t be so foolish as to turn down survivor benefits, but three and a half percent net is baked in, so it’s really a three point a half percent cost.

Tommy Blackburn: So we’ll have to hit there. A couple things come to my mind and one I, if any, there’s a lot of great takeaways here, but that one you just went over, John, to me is like such a great example in exercise for anyone to take away it’s most likely option zero.

Survivor was never an option. So now we’re between the other two. There’s really not much of an option there either when you look at it. So it should be pretty much made for you go through that exercise mentally to help yourself get there. Another one is that federal employees. They’ve worked a career, they oftentimes wanna make sure, I get what I’ve worked for, I want to get every cent that I worked for.

And it’s funny when we have these conversations, ironically to us, and the idea of not taking survivor benefits, it’s so you gonna let Uncle Sam win? Essentially what you saying here? And you are bound and determined to get all your money. So we would say, if that’s your mentality, survivor benefits probably should be on the table.

And the final piece there is you have to sign and get notarized. You have to, from your spouse, they have to waive their right to a survivor benefit. That is yet another speed bump in that decision. They should be making you slow down and really question if I had to get this thing signed. And particularly if you’re the spouse signing, yeah, it should really be a speed bump of maybe I shouldn’t be doing this or I should really reconsider this.

‘Cause they’re Uncle Sam is trying to protect himself to say, you signed, I made you double sign to ensure that you knew what you were doing.

Mike Mason: It’s unique Tommy, that you used that mentality of the federal employee and it’s probably just not just federal employees, you wanna win, right?

You wanna win. But think about this. Every federal employee listening to this, every retiree. If January, 2025 hit and you didn’t get a 4% COLA or 2.5% COLA or whatever it was. If you went one or two years without a cost of living adjustment, how mad, how ticked off at the federal government would you be that you didn’t get a two and a half percent pay raise.

But if you die January one and your spouse got a hundred percent pay cut, somehow or another you’re okay with that, it makes no sense to me.

John Mason: It’s amazing because we do very little prep for these podcast episodes, we’ll jot down an outline, talk about it a little bit, but I love where this is going.

So you both made me think the federal employee. We can talk about maybe a particular family member who knew the sick leave policy and annual leave policy better than we could ever know. She knew it, like the back of her hand, how to maximize every day of leave, every hour of leave. And that’s wonderful.

And I think a lot of times federal employees, they’ll pick, I need 62 for my 1.1. I’m gonna retire the last day of the month. It’s gonna be the end of a pay period. I’m gonna get mine. Maybe I’m gonna take the fork in the road offer and I’m gonna get mine there too. And they win and they work so hard maximizing all these benefits just to at retirement, say, no thank you, I’ll decline survivor benefits.

We don’t mean to poke fun at you audience, but it is amusing when you think about how hard you work for getting those last four hours of sick leave or how you carried over, 208 extra hours or 240 extra hours so you could get that payout at the end of the rainbow and then to decline SBP after you’ve done so much maximizing.

I think we could all agree that doesn’t seem logical. Now we can agree to disagree on many different things and I know people on our YouTube videos have disagreed with us from time to time, and we’ll address some of that too. I love where this is going. I love the mindset shift. If we talk a little bit about the mindset of somebody who’s retired and maybe we can also talk a little bit about how we’re not bulletproof.

We’re not doctors here, guys, on this podcast, but I had another client, less than 70 years old, diagnosed with stage three cancer recently. I had a client pass away last year, younger than age 75. And I guess what’s amazing to me is folks are making these lifetime decisions like declining SBP, and they think they’re gonna live till 85, 90, 95 years old.

And that’s all well and good. Your financial plan should take you that long. But we also have to plan for what if you die tomorrow or what if you die at 70? And these things are pretty likely. I have been on this health journey now, y’all both know for over two years. So I’m gonna go get a calcium score to see if I have early signs of A-S-C-V-D.

Like I’ve had high cholesterol. Do I have plaque buildup? Do I have calcium buildup? I don’t really know what any of that means. I just know that I’m a nerd and I like to know what’s going on. Are we declining survivor benefits and we’ve never had that scan. We’re declining survivor benefits and we have no idea whether or not we have the gene that says maybe we’ll have early-onset dementia.

Like how did we get there? How did we get to, I’m never going to need this?And I just feel like there’s no way the average person declining survivor benefits. I. Put significant thought process into their life expectancy and whether or not the assumptions that they were making make sense.

Mike Mason: You know how much a life insurance company would put a person through at 62 to 63 retiring, wanting to buy a million to $2 million worth of life insurance? They’re gonna know what their risk is, right? And so two points here. You get to retire and buy your life insurance when you retire. You don’t have to buy it before retirement.

You get the same price everybody gets. So it’s a preferred rating and I’m talking about survivor benefits. It’s preferred rating and it’s pre-tax. If you went to that doctor, maybe everyone should do that, John, maybe it’s a great point. Maybe you should go apply for the equivalent life insurance.

And if they tell you’re not gonna get a standard rate, you’re not gonna get a preferred rate, then you have a whole lot more confidence that buying survivor benefits was the right choice. So if you think you’re gonna turn it down, maybe you should see if you’re turned down first for the million dollar life insurance.

John Mason: You just brought us right back to avoid the common financial planning mistakes made by federal employees that we presented for decades and used to say, and you said it just now, you get to buy it when you need it at preferred issue rates on a pre-tax basis. And why is that so important? One of the mistakes that we used to address in the seminar, Tommy, you probably remember this too, is that we would say, not knowing you’re going to take full survivor benefits of retirement while you’re at your mid-career is a mistake, and why is that a mistake?

It’s a mistake because you let the whole life insurance guy in the room, you buy an index annuity because it’s got some super duper death benefit that nobody understands how it works. You start layering in these products and you start making decisions because you didn’t commit to taking full survivor benefits where if you had committed to full SBP early, you could have bought an awesome term life insurance policy with a huge death benefit, knowing that your permanent life insurance policy is guaranteed issue the day that you retire.

And the audience, if this is not abundantly clear to you. If you’re declining survivor benefits, we don’t think it’s a good idea. But if you’re going to decline it, you, by golly, you better have a big old insurance policy enforce before you retire, not honey, I’ll go get one after retirement, after Aruba, after Hawaii, and then you find out the bad news.

We need that policy in place early before you retire if you were gonna do some sort of SBP replacement.

Mike Mason: That’s a great point. I had another one I’m gonna bring up. I’ll figure it out. I’ve lost it now, but I’ll bring it up in a second.

John Mason: So I think one other thing, Tommy, we can talk about, and we’ve said this in other videos, is how there are some inherent financial planning assumptions that are flawed and they can impact the analysis of your plans.

Likelihood for success. They can impact the analysis on Roth conversions and things like your spending’s always linear. We know that’s an inherent flaw in a financial planning software, so we have to massage that around and play with it. We plan for our clients to live until they’re 90 and 95 years old, but sometimes we can see that’s probably not realistic.

And based on my life experience, I have a lot of clients unfortunately who have got sick earlier than that. So maybe that’s not a realistic assumption. But number three, for the folks declining survivor benefits, here’s a flawed assumption. We’re gonna take the SBP money, the premiums that we would’ve paid into SBP.

We’re gonna take the net after cost difference. So let’s say it was $500 for SVP premiums per month, net after taxes, you received 350. And Tommy, you, the federal employee, declining survivor benefits. By golly, you’re gonna do something really great with that 350 a month, aren’t you?

Tommy Blackburn: No. We both know that behaviorally, that’s 99% of the time nothing like you thought you were gonna do with that 350 is gonna happen. Maybe 1% are gonna actually commit to investing it.

John Mason: It’s so rare. It’s a flawed assumption, like point blank audience. If you’re thinking about declining survivor benefits, maybe you’re strong with the force. Maybe you are very you’re a Jedi you’re gonna make the right decision all the time, and that’s wonderful.

Realistically, we see people start deviating from the plan every time. They have to make another good decision every day, every year. On and on. Let’s face it, eggs were like $8 or $10 a dozen in New York recently. I don’t even know what they are here in Virginia. And it’s you start thinking about that $350 a month and you’re like I could do that, or I could buy some eggs.

You’re probably gonna go buy the eggs. And then what’s going, we now, we don’t have our money for the life insurance policy or whatever productive thing we were gonna do with it. So we’re gonna get knocked around a bit in retirement, guys. And I think it would just be flawed for people to think that they’re gonna be able to use that 350 in our example forever for that SBP replacement.

Mike Mason: the one of the common statements, again, radio, you have to say things quick and make big points, so you’re turning down survivor benefits, we’ll use the first full cost of 7% net. What you’re saying there when you turn it down is that the two of you can’t live comfortably on 93% of your pension.

So you’re not gonna take survivor benefit. So you can’t live comfortably on 93%, but somehow when one of you dies, the other one can live comfortably on zero. And it still brings me back to that Coventry Direct commercial where the couple’s sitting on the yard and they’re like, boy, we thought we planned, but we don’t have enough money.

So guess what? We went in and sold our life insurance and now we can enjoy retirement. Yeah. So they went in and unchose survivor benefits by selling their life insurance. And the other one that survives, they’re gonna race each other to see who dies first, so the other one doesn’t have to eat Beanie Weenies.

John Mason: So Mike, and going along that same line, one of your favorite statements, and I think you said this one first, is, and the people on YouTube loved it as well. If you can’t afford to retire with full survivor benefits, then you can’t afford to retire. So let’s say that one more time. If you are a federal employee and you can’t afford to retire with full survivor benefits, then you can’t afford to retire.

Did I get that right?

Mike Mason: You did. You can’t afford to retire.

John Mason: Cannot afford to retire unless you have the ability to take full survivor benefits at retirement. So let’s have some fun. We’re on a Star Wars kick at my house. My son is five years old, and we’ve been watching Luke and Princess Leia and Jabba the Hut and all these different things.

And as we were preparing for this podcast episode, we watched the original trilogy first, by the way, guys. So original four or five and six. And then we went back to episode one where Anakin Skywalker, also known as Darth Vader, is nine years old and he is before the Jedi Council. And they’re trying to determine should Anakin be trained as a Jedi?

And they say, I don’t think so. I sense something bad about this guy. And Yoda says how do you feel? How feel you? And he said, cold, sir. And then he said, see through you, we can, dwelling on your mother, afraid to lose her, I think. And Anakin says what does that have to do with anything?

And Yoda says, everything. Fear is the path to the dark side. Fear leads to anger. Anger leads to hate, and hate leads to suffering. I sense much fear in you. And you think about that comment, fear is the path to the dark side. Fear leads to anger. Anger leads to hate and hate leads to suffering. I sense much fear in you.

We know guys that we’ve been doing this me almost 15 years now, Mike, longer Tommy, the same as me. People are scared. They’re scared when they retire. They’ve never done it before. Then you throw in DOGE, then you throw in the fork in the road, then you throw in social security. I’m confused. You start throwing in stock market volatility.

President Trump did this. People are scared and I think that we should acknowledge the fact that fear is the path to the dark side, which means, you’re not bad people because you declined survivor benefits, but the dark side is maybe doing something that’s damaging to your financial plan.

Another example, Tommy, would be when the market drops 20%, we go to cash. Fear is the path to the dark side. That is not a good decision to just go to cash when we get scared.

Tommy Blackburn: Maybe when the mark is well and all of a sudden with fear of missing out, or greed, whatever it is. And now we’re all in again.

So it’s just as we, the force, I believe talked to about you gotta have, the force has to be in balance, right? And it’s almost like your plan and your life, your emotions. We need to try to keep them in balance. And so by having SBP in place, we have balance. That asset is protected. It allows us to let our investments work as investments without everything being so emotional.

So it is funny how these themes come full circle sometimes and can apply to so many things. But I love the the Star Wars analogy here.

Mike Mason: How interesting as well. Different wildfires in Los Angeles, just a month or so ago, and thousands of houses destroyed and the media is telling folks that many of those don’t have insurance or didn’t have enough insurance because of it being California and the world thought, “What would my life be if I lost my house at 60 years old and have to go out and mortgage?” What’s the difference? Your house isn’t your largest asset. Your income stream is your largest asset. And so the fear, John, if anybody that’s listening to this didn’t have homeowners insurance or car insurance, they would live in fear every day.

But how do you not live in fear when you don’t have survivor benefits, when you haven’t insured your biggest asset?

John Mason: We insure a lot of silly things. We insure a lot of silly things that are a lot less valuable than survivor benefits. And I think that your point, Mike, is valid. Like we saw this with, I guess two points here.

We’ve seen how our family and our clients have been able to weather the storm through a 2008 or a market downturn because they know they have their pension. It allows them to behave differently and respond differently to market volatility when you have such great guaranteed income. I think you’ve also witnessed as a planner how not having survivor benefits can really impact spending decisions in retirement.

And maybe you could just share a little bit of your perspective on the people you’ve worked with who have declined survivor benefits and how that changed the entire plan and how every time the market moved, it caused just mindsets shift that they should not have had to deal with?

Mike Mason: The best story we can tell and the reason I have the passion and you guys have taken it on as well is your namesake, my dad, your grandpa, John, retired from National Institutes of Health. I was a year and a half into the business and he made the choice to take the very minimal survivor benefits for A-C-S-R-S employee.

So about $1,800 a year benefit to mom. And then two years later, I realized how bad a decision that was. And fortunately I was able to get some life insurance and we used some life insurance that the cash value builds inside of what looks like mutual funds, variable life insurance. And it was doing great through the nineties.

Everything was working then 2001 hits and the money that he was about to inherit from his mother, 2000, 2001 hits, that was in the market, it loses 50% of its value and the insurance dollars get impacted. And now I’m making decisions on cash in the investments, cash in the insurance. And I’m getting scared ’cause I don’t know where the market’s going to keep going down or not.

So you get conservative because you’re asking this life insurance and the investments to do so many jobs. You can’t let them fail. Imagine if he had full survivor benefits. One, we wouldn’t have had to buy the life insurance. Two, we would’ve stayed as aggressive in the market. We would’ve rebounded, we would’ve got hit again in 2008 and we would’ve rebounded from that.

So you can’t ask your investments to be your disability policy, your survivor benefit policy. Your investments are your investments and you have to ensure those other things.

John Mason: So continuing down that path, which this podcast, I hope our audience is loving it ’cause I am asking your investments to do all sorts of things.

Income, retirement, legacy. Insurance, everything. Tommy, over the last 10 years that you and I have been doing this, long-term care policies have virtually gone to zero. Like back when we’re talking about Grandpa John, at least Grandpa John had life insurance and long-term care insurance. He had both. So if he had a long-term care event that lasted five or 10 years, we weren’t also asking his life insurance policy to provide a long-term care benefit.

Were we at least had that. Now what we’ve seen is long-term care has gone through the roof, Tommy, nobody wants it. Nobody’s buying it. And again, like I just go to my personal experiences of having folks with diagnosed with early onset in their 60s, that could absolutely obliterate your survivor benefit replacement.

It could obliterate it. And you don’t have long-term care either. So it’s all gone.

Tommy Blackburn: Unfortunately, even in today, if you got a new long-term care policy, it’s probably getting obliterated too in that scenario, right? If we had a 80 60, we started using it. ’cause don’t really get too many lifetime or any that I’m aware of at this point.

But yeah, then if we no longer, yeah, we could’ve decimated the estate, right? So there’s nothing there for the spouse, no survivor benefit. It’s at least do things, open eyes, right? Understand if you’re not gonna have anything in place that your assets, your investments have to be everything and know can they weather that or should you have had some insurance and most likely you should have had some insurance.

And it brings me back to the mentality, the mind shift that, and comical is not the right word, but we have this unbiased objective perspective as we work with all of audience and our clients and we valued this career, we valued the benefits, we value the pension we get at the end.

We realize federal health benefits is tremendously beneficial, but we don’t think it’s worth insuring. And it’s just that’s just step back for a minute. You put a whole career and you realize this was valuable. So it’s got to be worth protecting.

John Mason: I started listening to, I started listening to a podcast episode today from one of our friends in the industry.

His name’s Taylor Schulte and I’ll, we’ll actually link it in the notes. And he has the Stay Wealthy Retirement Show or the Stay Wealthy Retirement Podcast. And in his episode today, or whenever it was released, he was talking about this, I think he’s a bestselling author who went skiing when he was in his teens and him and two friends were out and they were skiing back country after a huge snowstorm.

And they made it down after starting a baby avalanche. And his two friends decided they wanted to go back and do it again. He was gonna meet them at the bottom with the truck, and his two friends never showed up. And the risk was basically they didn’t understand the tail risk. They understood the normal risk.

Will I fall? Will I get hurt? They understood what’s the risk of getting lost or what’s, they understood all the risk, but they didn’t really think about the tail risk, which was death. And in Taylor’s example, in his podcast, he was just talking about how important it is that we understand the tail risk in our financial plan.

So for our engineers out there, you know that when we get past two standard deviations, we get into tail risk. We are so far from a normal experience that it, that happens at the tails, either good or bad. So a tail event in the stock market could be up 50 or down 50, for example, black Swan event, right? Be an early onset diagnosis, a long-term care event.

There are so many things that could be tail events that we have to address in our financial plan. And if we’re not addressing those tail risk events, when you’re making this one time decision on SBP, we made a ill-informed decision, didn’t we?

Mike Mason: Absolutely. And I wanna tell a really happy story.

Not that these have been sad, but and you’ll know the couple I’m talking about. He’s retired, military in FERS. She’s retired CSRS. And they went, beaten and scratching into their retirement, signature for survivor benefits. She hated that I pushed the survivor benefit thing.

They wake up seven years into retirement and they see this around the world cruise on around the world trip on a a private plane. Basically about 20 couples, a quarter of a million dollar trip. How many other people, government employees, would think they would do a $250,000 trip? The advice or the reasoning they gave to me is that their income combined is higher than anything that they could ever think of doing here.

And they didn’t wanna leave their money to a charity. They didn’t have children. By taking survivor benefits they were able to spend a quarter of a million dollars on a trip and that was two years ago, and they’re gonna do another one two years from now. So having those incomes protected for which everyone survives has allowed them to do some of the greatest retirement vacationing that I’ve ever heard of.

Quarter of a million dollar trip. I don’t see that in my future. So.

John Mason: It gave them the freedom and flexibility to use their investments in a different way. Whereas if the investments were also survivor benefits, it would’ve been a different story. No doubt. So I wrote down a couple things. Federal employees who decline survivor benefits, I don’t think are bad.

I think they’re ill-informed, whether it’s federal military, private sector, what have you. I don’t think they do it out of greed. So greed, it’s not. Fear, it is why these folks are declining survivor benefits and typically the reason we’re seeing is we can’t envision a world, Tommy, where we can make the same or more in retirement compared to when we were working and have SBP. We can’t envision that world.

So we’re too scared, we’re fearful. Fear. It is, we’re scared that when we retire, we’re gonna be eating cat food, we’re gonna have less, we’re not gonna be able to replace our lifestyle and the only lever we can think to pull while all the other things are going up. Eggs, health insurance, doctor visits, car payments, gas, everything’s going up.

What’s the one lever that we can pull to try and save some money? Because everybody told me, I’m gonna have to skinny down in retirement. I’m gonna have to tighten the belt. I’m gonna decline SBP.

Tommy Blackburn: You know what else goes up in all those scenarios that were inflation adjusted? That pension that we need to protect.

John Mason: So maybe walk us real quick, Tommy, through modified current income, because we’re gonna have a YouTube video that comes out that just addresses that specifically, but modified current income that just that may help folks reverse their decision and take full survivor benefits this year.

Tommy Blackburn: Yeah, we’re gonna go down it.

There’s a few ways to get there. So we’ll hit modify current income. Another one I just wanna mention for folks, look at what’s hitting your bank account. That’s another simple way to do this, is what’s coming to the bank. And if we don’t know that we’re saving it, it’s being spent and that’s gonna give us a good idea, a starting place of our budget.

And the reason I bring this up and it dovetails with modify current income is new client recently was coming on and they actually had met with some, I’m taking us down a path to get back there, I promise, and I’m trying not to take too long. They had met with an annuity salesman who basically said, we gotta replace all your income, and only way we’re gonna get there is with this annuity, and this is what everybody in retirement does.

Like you should be, why are you even asking me questions kind of thing. Anyway, so he comes to us, and we start talking to him. It’s what do we. What are we trying to accomplish? What’s the goal? Which modified current income is one way to identify it? And when he came back as we went through this, there’s a lot of appreciation, right?

Of I see the path now that y’all have laid in front of me. I see how this is all gonna be accomplished. I see how that was a terrible sales pitch or where they were trying to put me down that path. But they really appreciated this exercise of just saying thank you for forcing me to think about what do I actually need instead of starting at this top line number.

And so modify current income as an example. Let’s start with a hundred thousand is what we make. Hopefully this is an easy math scenario. Then we would say, let’s chop 10% off, right? So take 90% of that number less than 10%. Why do we take 10% off the bat? Because while you’re working, you’re paying social security and Medicare taxes.

And so that’s what is it, 7.645 or something along those lines. That’s an after-tax number. So we need to get that back to a pre-tax equivalent. Just call it 10% for easy math. So now we’re down to 90,000. We were probably also putting at least 5% into our TSP if we were federal, maybe far more.

So let’s take 5% off of that a hundred again. So that’s another five. So we’re down to 85 now. Maybe we don’t need, maybe we’re carrying life insurance and we’ve said we’re gonna have survivor benefits on the pension, so let’s start backing those kind of things up. Maybe we won’t have a mortgage so we could foreseeably, get down to a 70,000 or potentially less.

So this tells us it’s just a way to begin seeing, you never had a hundred thousand, right? You had all these other things and if we just back down to where we actually were, it’s the same, it’s the same exercise of net deposits, right? Of just what were you actually getting in spending and let’s work for that to maintain our standard of living.

And as John, you alluded to earlier, we all do is it’s probably gonna be even better than your current standard of living. But we like to start there. Here’s where we are today. Let’s sprinkle in some new costs if they’re gonna exist. We will count for those things like Medicare, if it’s a player. And then we got our bases covered.

We’re probably gonna be able to show you we’re gonna have more than that standard of living covered. But that was a quick fly-by of MCI. Please illustrate any more of that, you’d to.

John Mason: We’ve got a video coming out on it and that’ll be great. And then, so 70%, 70,000, if that is your modified current income, then we need to replace 70,000 in retirement.

So when does replacing 70% of your income equal 100% income replacement? It’s when your modified current income was never a 100, it was 70 to begin with. And again, this is another fear tactic that annuity salespeople and other people will do those like, oh, we need to get back to this magical number.

Or it’s scary. It’s I’m only gonna be able to replace 70% of my income? That’s terrifying. Fear. Fear is the path to the dark side. So if we said, and Mike, you and Ken did this for a long time, we don’t wanna show clients that they’re only replacing 70%. We wanna show ’em that they’re retiring with a 100% income replacement.

They just never knew what they were making to begin with.

Mike Mason: Oh yeah. When I broke in the business, it was standard, you should plan for 70% income replacement and you just accepted, as they’re training you, you just accepted that, okay, we’re just not, we can’t get there. The 70% was a good number.

They just didn’t know how they got it. Whoever gave it to that person that trained everybody else, didn’t explain it. They just didn’t give them the details of how you get to 70%. Long story short, if you’re a career federal employee, you work 35, 40 years, you are gonna retire and take survivor benefits and make more income for the rest of your life than you were making the day before you retired.

It’s that simple. You’ve got everything. You got great health insurance, you’ve got survivor benefits. And I told you the one cruise I went on, I ended up doing a survey by accident. And the people that was on that cruise at the highest levels of being pampered were either state, federal, or business people, state federal retirees or business people.

So you are the secret millionaires. Maybe with Musk right now. Maybe it’s not so secret anymore, but you’re still the secret millionaires.

John Mason: So to be clear, clients, potential clients, people listening to this podcast, the folks we work with. And granted we work with federal employees in our near retirement with a million dollars or more saved in their investments.

Our clients are retiring, making more money in retirement than they were before they quit. So while they’re working, they’re making more money in retirement. I think it’s so powerful to understand that’s possible kind of continuing the Star Wars theme here. Number VII, Episode 7 is the Force Awakens, and that’s when Ray, starts realizing her force powers and she begins to bring the Jedi back.

I hope this is a force awakening. I hope our audience is starting to hear and see and feel. That it is a little bit different for them. The people listening to this podcast, it’s a little bit of a different world, and hopefully they’re the force is awakening. Hopefully they’re gonna encourage folks to, to take full survivor benefits.

So they’ll take it themselves. So a couple other things here. We promise that we would address some YouTube comments. So we’re gonna do some quick hit from our YouTube video as well as Reddit. Let’s take Reddit first. So Reddit, I did some searching and thank you for all the Reddit people who listened to our podcast, who have mentioned us on those various threads.

But I have one beef with Reddit. Two beefs. One, we probably shouldn’t be taking too much advice on Reddit other than listen to our podcast. We think that’s good advice. But financial planning and investment advice on Reddit is probably not where you want to go, but it’s fascinating that there’s a lot of talk about the pension and there’s a lot of talk about investments and thrift savings plan and the threads on survivor benefits are few and far between, and the threads on survivor benefits. Instead of there being a hundred responses to how should I invest my TSP, there’s three responses to should I take survivor benefits. So I would like to force, to awaken with you, our audience. If you’re a Reddit person, go onto those threads, find those threads, share this episode, share our YouTube because nobody’s talking about this, they wanna talk about the sexy stock market TSP.

They don’t want to talk about survivor benefits. Thank you for, in advance for doing that. YouTube questions, common question. Let’s address it. Mike. I’m not married when I retire from a federal job, but then I get married two years later after I’ve retired. What happens now? Can I take survivor benefits? Yes? No?

Mike Mason: Great opportunity. You have a window to elect survivor benefits for the new spouse. And again, the point you made was important. They were not married, so they didn’t have a chance to take it when they retired. That window is two years. If you elect it there, you want elect it soon right away.

And I think there’s probably a six-month waiting period, where it’s fully enforced. Does that sound familiar?

John Mason: I don’t remember the waiting period, but I remember the 24 months to elect it. And then I think you have to back pay premiums and it’s, there are certain things that you have to do, certain hurdles that you have to jump through, but we’ve helped a few clients through that process.

Mike Mason: Yeah. I think the waiting period’s there for deathbed choices, right?

John Mason:Oh, that sounds right.

Mike Mason:And gets there. Yeah.

John Mason: Okay. So next question is, Tommy, can I get a military, can I receive a military survivor benefit and a FERS survivor benefit?

Tommy Blackburn: Yes, you absolutely can. There’re two different pension systems there.

So they’re not really talking, coordinating. And yes, you short answer, you can certainly be a survivor on both of those. I think Mike knows, I think we need to go into it. So there are different nuances if we’re strictly inside the federal government civilian pension system. So if we’re talking CSRS and FERS, that is not the case.

But if it is FERS and military, civilian and military, yes, you can get both of those survivor benefits.

Mike Mason: Yeah, and I’ll throw a caveat in there. 50% of the time you really can’t because by the time we meet that federal employee, he retired from the military 15 years before he saw him, and he turned down survivor benefits, so see the assumption is that they took survivor benefits when they retired military and that they’re gonna take him again at FERS. Just being funny.

John Mason: So the other question on here was what about life insurance? Somebody asked and I think we responded. What about it? So what’s the question? What about life insurance? What about life insurance is in my 15 years of doing it, and Mike’s 30 or 40 years of doing this and Tommy’s 15 years of doing it, your federal pension is easily worth a million dollars or more.

Your survivor benefit is worth $500,000 or more probably if we use standard distribution rates. So good luck going out and finding a whole life of variable life or any sort of permanent policy that’s going to replace survivor benefits for you in retirement at the same or lower premium than what SBP costs.

Such a policy does not exist. Such a world does not exist where you can do that. And so what people do is they go by term and then they hope they die before the term expires. And that’s not a happy world to live in either. So what about life insurance? We used to help clients get life insurance and we used to be paid commissions to help people acquire life insurance policies.

We didn’t like life insurance then. We don’t like it now. And we’d much rather have you have full survivor benefits in retirement, even if you’re dual federal. We’d say both. Take it. And we’re getting close to showing our example here illustrative on YouTube. But the other thing we should address is need.

Mike Mason: I mean, John, let me just make a point on the life insurance.

Life insurance is a necessary evil and one of our favorite comments, if you can afford to retire, you can afford to die as long as you take survivor benefits. We just have to get you to the point you can afford to retire. So if you’re 30 years old with a couple of children, the last thing you need to be doing is buying whole life insurance.

Get the right amount of term insurance, buy it 30 year term, so it gives you plenty of time locked in premium. And then it’s okay that it expires at retirement because your insurance in retirement is survivor benefits.

John Mason: Thank you for clarifying. ’cause we do recommend life insurance all the time for the right reasons.

Young couples, I have a bunch of life insurance. Tommy does, we’ve got insurance on the partners here at Mason & Associates. I have my house insured, so we have to buy the right insurance for the job and we actively encourage clients to do that. And we just believe that survivor benefits is the correct form of life insurance to purchase as you approach your retirement years’ need.

I think our audience has heard this from time to time and it’s one, I think one of the questions was like I don’t need it. Or a comment was like I don’t really need it. And this goes twofold, which is, one, if we base all of your retirement spending on need, most of us don’t need for anything, especially if we have pensions and social security, you’re probably never gonna fully use or spend or enjoy the assets that you’ve accumulated if you only base your spending decisions on need.

So we wanna broaden your horizons a bit. We want to think about the big vacations, the RV trips, whatever it may be, helping the kids, the family, donate to charity. Those aren’t necessarily things you need to do, but they’re things you can do. So will your spouse be okay if you decline survivor benefits? Quite possibly.

Does your spouse need half of your pension when you die? Maybe not. I don’t think that means appreciate, doesn’t he? Or she doesn’t want it. I think it would be appreciated, Tommy, to your point.

Tommy Blackburn: There’s a lot of things in life I don’t need and I reflect that and realize, how fortunate my life is there now.

And while it’s good to know what I do and don’t need, doesn’t mean I want to go down to need, life is pretty nice when I’m not living just based on my needs.

John Mason: That’s a great point. Sarah’s car is being washed today. Detailed at the house after five and a half years, and a dog and a kid.

And it was a frivolous expense, but it was a birthday present too, and it’s man, that was certainly not a need. I could have used my own elbows and all this kind of stuff and cleaned it myself, but it was pretty awesome to record a podcast with y’all while that car is being detailed. And that’s certainly not a need, but a convenience I don’t want to pass up.

Tommy Blackburn: Exactly. There you go.

John Mason: Guys, I think we’ve handled almost everything here on survivor benefits. There was one question and somebody asked, how long does it take? And closing on, I think, a positive story, somebody said, how long does it take to get survivor benefits? And my interpretation of that question is, after my spouse dies, how long does it take for that survivor annuity to kick in?

And unfortunately, somebody on our YouTube channel wrote 24 months. It was 20 or 24 months that it took her or him to get the survivor benefit activated. We replied that recently we had a client pass away in November, and their surviving spouse gets their first survivor benefit check in March. So 24 months compared to four months.

Not saying that’s 100% because we were involved, but I’m sure that having us involved sped up the process dramatically. Even just knowing like I know how to get through to OPM, you call and they tell you they’re busy, just keep calling back and eventually you’ll get through. And then miraculously the wait doesn’t tend to be that long, right?

But it’s because we’ve done this for decades. We know the tricks, we know how to do it. And our clients who’ve had a spouse pass away, maybe it’s not always as fast guys as four months, but it was just eye-opening to me reading through some of these YouTube comments, how life-changing this was for our clients, that we were able to at least help get that pension activated in four months, vice 24.

Mike Mason: Yeah, the, it’s the anomaly that it’s longer than that four month period, but you know what those anomalies look like, and so if you’re divorced, if you’ve got a divorce decree and ex-spouse is getting part of your retirement and then a current spouse is getting part, now legal, has gotta get involved and they take forever.

I’ve had one of those, it didn’t take 24 months, but it definitely was a 8 or 9 month, position. And if you’re listening and you have that situation, you wanna make sure that you have enough and a ready access account that your spouse can get through that six month period.

John Mason: So that’s applies for retirement as well. We see some retirements get adjudicated in three to four months. We see some take over 12 months if you have those complications similar, like we just highlighted on SBP, survivor benefit pension beginning, but I know for sure Mike, that, and I think you’re downplaying a little bit, my comment, which is we directly had an impact on how fast this pension started for the surviving spouse.

Because we know the rules. So I think the audience should be clear about just knowing that like you have somebody that can hold your hand could speed up the process, whether it’s 30 days or two years the people you’re working with can have a major impact.

Mike Mason: Did not want to downplay that at all. We’ve got a whole system of do this, this, this, and this. It’s a bucket list of what to do to expedite it.

John Mason: So we promised audience a visual, and we want to close with a visual on why we’re so much big fans of survivor benefits. We’re gonna link a couple episodes in the description below.

Number one is going to be our survivor benefit video that’s very popular. Number two is gonna be an interview that we did with WAVY TV 10. Number three is going to be the podcast episode from Taylor Schulte, which I just think is interesting because it addresses tail risk and then be on the lookout for our video on modified current income.

But here’s the visual on why we’re such big fans of survivor benefits and why so many people today are making decisions probably not fully informed. Okay? So we promised you we would finish on this example. It’s not beautiful, it’s not pretty, but it’s gonna get the job done, folks. So we have a typical couple retiring in 2025 that Mason & Associates would come across, and it’s very common for us to see a federal employee with a federal pension of $40,000 or higher after a 30 or 40 year career, this is certainly attainable.

In today’s day and age, it’s very common for both spouses to work. So we’re showing here two spouses each drawing $30,000 a year in social security, and then if we assume a million dollars or so invested, maybe that’s $40,000 a year. We’re drawing an income. So if we did our math that’s $140,000 folks of family income and retirement.

If you decline survivor benefits at retirement, this is what happens. The first pension goes away completely. Not to mention we also lost federal employee health benefits, et cetera. Maybe we weren’t sure, or maybe we didn’t know that the Social Security rules for you are maybe not fair in this situation because Social Security says you get to keep the higher of the two benefits.

You don’t get to keep both. So another $30,000 of Social Security goes away, leaving this family $70,000 of income after the first person has passed away. $140,000 drops 50% down to $70,000 a year. I think what’s important for you to know here is that you had a choice on only one of these, which was FERS.

You didn’t actually have a choice on Social Security. So when you declined FERS, the government declined social security for you. The best we could do was basically protect 25% of this spouse’s income. That’s the best we could do, and we get there by electing full survivor benefits on FERS. So hopefully that example is helpful, that kind of illustrates what we did on the WAVY TV 10 interview with poker chips. Here, it’s illustrated a different way.

We’re massive fans of survivor benefits. We hope that we’re either confirming the choice that you’ve already made or maybe we did a good job today convincing you to reverse a decision you were about to make. And again, like we led in with this episode, guys, we just hope that at the end of the day, this will be shared with people who need it, even if you’re single, divorced, or widowed.

And this doesn’t apply to you now, share it with the people you care about because it’s directly applicable to them. Thank you so much, guys, for recording this episode.

Mike Mason: It’s been a pleasure. I would add one piece to it. If someone’s encouraging you to turn down survivor benefits, ask them what are they gonna do with the extra money that’s in your pocket.

Uncle Sam has never sent us a check after being in this business for 37 years, saying, Mike, thanks for the tens of thousands of people that took survivor benefits. Were not paid to help you do it. Some people are paid to help you not do it.

Tommy Blackburn: It’s been a pleasure. Hope it’s helpful.

Please share it. And please, we love hearing from you, so leave comments, whether it’s on Reddit or on the channel or shoot ’em over to us directly. We would love to address those questions and we just appreciate hearing from you, the audience.

John Mason: And for what it’s worth. Audience, out of the 400 or so families we work with and many of them who have elected full survivor benefits at retirement, I don’t think we’re aware of any one of those who regret their decision.

That could be selection bias, but hopefully that’s helpful. As you think about electing full survivor benefits at your retirement. Is our content helping you make informed decisions? Do you feel more educated and empowered? Have you made positive changes in your financial plans since you started following?

Like Tommy said, we’d love to hear from you comment section on YouTube or Reddit or even sending us an email to Mason FP like masonfinancialplanning@masonllc.net. Thank you for tuning in to another episode of the Federal Employee Financial Planning Podcast. We’re financial planners first, and we do this second.

As always, we hope you leave this episode feeling educated and empowered to make positive changes in your financial plan.

The topics discussed on this podcast represent our best understanding of federal benefits and are for informational and educational purposes only, and should not be construed as investment, financial planning, or other professional advice.

We encourage you to consult with the office of personnel management and one or more professional advisors before taking any action based on the information presented.